GameStock: The Left Can’t Afford to Fall for Faux-Populist Propaganda

If you’ve faintly followed the GameStop short-squeeze, you’d be forgiven for buying the narrative of David versus Goliath, a fight between small guy retail traders and the big Wall Street fat cats trying to manipulate the market. The saga led to Robinhood, one of the largest online brokerages, halting customers from buying into the GME shares, a decision they were accused of making following a supposed billion-dollar bribe. The news sparked unprecedented unity across the nation against what seemed to be the perfect example of a rigged system in action.

If this anti-establishment tale was a bottled product, it’d almost seem too good to be true. But as it turns out, scratching the label unveils the dreaded words ‘snake oil’. At the time, Robinhood’s actions did appear legally suspect, prompting populist politicians on both sides such as the left’s Rep. Alexandria Ocasio-Cortez and the right’s Sen. Ted Cruz to call for an investigation. And given the nature of the 24-hour news cycle, where all forms of media rush out these developing stories by emphasizing the emotional over the factual, it’s easy to see how people bought it hook, line and sinker.

Nevertheless, it does not excuse trusted left-leaning platforms for perpetuating such propaganda at a time during which it cannot afford missteps. So what happened? And where are we now? Well, there is only so much we know for certain. On January 29th, The Securities and Exchange Commission announced it would be reviewing the “recent volatility in GameStop”, additional stocks such as AMC, Nokia, Bed Bath and Beyond, as well as other publicly traded entities linked the r/WallStreetBets subreddit, the online forum responsible for thousands of people buying up stock in random companies to sow financial chaos. Good. We should welcome these investigations with open arms. There is nowhere near enough societal understanding behind markets, let alone how people can use and abuse these markets at will, which devolves into the choose-your-own economic reality approach to politics.

With that said, these investigations must act as good faith information tools to separate the fact from the fiction, not as bad faith political tools enabling snake oil merchants from the top-down. It’s not all that radical to say we should employ the basic operating procedure of not jumping to conclusions. This is where I take serious umbrage with the likes of Kyle Kulinski, host of the Secular Talk radio show and founder of the Justice Democrats, who complicated this procedure by widely circulating the accusation that Robinhood had taken a billion-dollar bribe to halt the buying of GME and other stocks amongst retail investors.

In response to Bastiat, a Twitch streamer who noticed Kulinski’s rhetoric was similar to pro-QAnon accounts, he stated: “Lollllll you are the dumbest motherfucker on the planet. QAnon is pure horse shit, as I’ve stated 1,000 times. It’s an ‘elitist cabal’ [because] Robinhood got $1 billion from hedge funds for stopping purchases of GME & AMC & Google deleted 100k negative reviews. Organized rigging = cabal.” Although one could possibly excuse misinformation on Twitter, a platform primarily used for spitting out careless hot takes for the sake of audience laughs, this misleading rhetoric continued into his videos, spreading the claim that “Robinhood raised a billion from hedge funds to block the purchasing of stocks.”

This is a disgusting lie by omission. Just a day after these claims were spread, The New York Times reported that Robinhood, facing an onslaught of high volume trades into GameStop, simply didn’t have the money on hand to cover their own ass. The trading app had to simultaneously “pay customers who are owed money from trades while posting additional cash to its clearing facility to insulate its trading partners from potential losses,” according to journalists Kate Kelly, Erin Griffith, Andrew Ross Sorkin, and Nathaniel Popper.

In short, Robinhood found it embarrassing that they had no collateral. If we’re going to be charitable to Kulinski, Robinhood’s communications team did indeed do a piss-poor job in justifying their follow-up decision to temporarily shut down GME trades. With that said, a respected newsman, always willing to criticize the lamestream media, should do some digging beyond the scope of a bad PR team with no money in the bank.

“To continue operating,” the Times writers continue, “it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation.” Despite holding half a billion dollars, Robinhood still needed more cash to meet the demand.

And so this led to last Thursday’s private negotiations with venture capital firms Sequoia Capital and Ribbit Capital, the two hedge funds we can presume Kulinski was referring to. The Times was able to reach five sources close to these negotiations, who remained anonymous due to their legal contracts, who confirmed these meetings were to raise emergency funding upwards of a billion dollars to continue GME trading as quickly as possible. From this, it appears the bailout money was being raised for the exact opposite reason as Kulinski claimed.

In fact, these weren’t even the same hedge funds that were shorting GME stock. Kulinski’s framing implies that Sequoia and Ribbit ran to Robinhood for help, not the other way around. As if these hedge funds, fearing for their own solvency, were ready to unleash the $1 billion dollars in rainy day funds in the event of a catastrophic short-squeeze. Now, did some hedge funds lose billions of dollars? And do they wish they had a spare billion dollars laying around to prevent further losses? Of course, but this conspiracy of two random hedge funds enacting this bribe strategy is simply just not the case, and could be considered libelous if they cared enough to sue online propagandists .

Instead, The Financial Times found the main target of the short-squeeze was actually Melvin Capital, a completely different hedge fund that lost half of its $13 billion dollars in worth in just six months. Melvin Capital was not involved in the bailout. Does Kulinski think all hedge funds are one and the same? Operating with some sort of capitalist solidarity among their billionaire comrades? If so, doesn’t this conflict with the realities of capitalism? That there are no friends in business, it’s a dog eat dog world and cruel markets are just waiting to make money off your own misfortune?

After all, short-selling operates on this very basis, which is the crux of the whole GameStop craze. Simply put, short-selling is a legalized form of gambling on someone’s economic misfortune. You borrow stocks at a higher price, sell them off, and ideally, you should be able to return those stocks when they’re at a lower price. Anything else is yours for the taking. The fact that GME stocks rose is the very reason why Melvin and Robinhood were both in trouble in the first place, allowing other hedge funds like Sequoia and Ribbit to profit off of their rather ironic misfortune.

As reported by Bloomberg, the bailout money is being used in exchange for a potential equity deal with Robinhood, who would then allow their customers to buy whatever stocks they want. And just a few days later, Robinhood removed the limits on all stock trades, including GameStop. As it stands, there is no evidence linking Melvin Capital to being in bed with Sequoia and Ribbit. These are three completely different entities in the same broad market of “hedge fund,” two of which are uninvolved in this whole story besides potentially profiting from the fallout.

If this was meant to be a billion-dollar bribe, an indisputable example of the rigged system, why did Kulinski’s “elitist cabal” suddenly reverse course? Did Robinhood pocket the money and run? Did they refuse the billion dollars? Randomly find another mysterious benefactor who could out-bid the Wall Street billionaires? Forgive me if I highly doubt these assertions, particularly as the GameStop shares reopened and yet continued to plunge by 84% and AMC lost 47% as retail traders simply turned their attention elsewhere. No. Some people made money, others lost money, and it even takes money to circulate money.

Unfortunately for Kulinski, it also takes a lot more brains to keep track of all the actors at play and criticize which money-making schemes are more ethical than others. At least if you’re trying to relay as much verifiable information as possible. Robinhood CEO Vlad Tenev also appeared on CNBC to address the matter: “We just haven’t seen this level of concentrated interest market-wide in a small number of names before,” he said. Or, as translated by Vox: “individual investors haven’t worked together to impact specific stocks like this before, at least not to this magnitude and with this level of technology.” It’s easier to frame the bad hedge funds and good day traders as being these black and white monoliths, including the 3 million members on WallStreetBets who lovingly refer to themselves as the “degenerates” of Wall Street.

Now, if you’re an anti-politically correct leftist with a large radio show, whose whole purpose online is to sell people the narrative of anti-establishment politics against the elitist cabal, perhaps you can afford to skirt the details for your own personal gain. We can respect the grift for what it is. For the rest of us who want to cover the news factually, criticize the system fairly and actually institute true change, avoiding misinformation of this magnitude is not just mutually advantageous, but a moral obligation. Given the left’s own lack of collateral, barely holding any institutional money and power besides a select few progressive members of Congress, these efforts only misdirect grassroots anger towards faulty targets, wasting the momentum of the larger project of systemic progress.

At worst, the responsibility of these platforms is to keep small-time people out of harm's way, offering genuine solutions rather than giving people their next fix of faux-populism. When GameStop surged, people like Kulinski and his online colleagues, such as Krystal Ball and Saagar Enjeti, were claiming this was a decentralized revolution, a market-based revolt against the rich where common people could make money on their suffering. And for a time, this had a grain of truth. But as more and more people were brought into this two-week ride of what inevitably became a pump and dump scheme, the economy’s zero-sum nature reared its ugly head.

As reported by The New York Times, this “unlikely trading boom” wasn’t the result of a video game retailer offering wonderful services for sustained growth, but rather irresponsible media hype that as more people came in, there was more money there was to be made, all in the interest of screwing over Wall Street. For example, if you bought in last Friday, the stock was worth $63.77 per share. And at its highest point, GameStop’s share price was $483 until it dropped to $80 just the other day. For some, there was profit to be made. For others, that stock had nowhere to go but down.

Unsustainable business happens when your plan amounts to decentralized Ponzi schemes, pyramid schemes, and the outcome of a pump and dump. In legal cases, these are considered to be fraudulent investing scams, promising “high rates of return with little risk to investors”, when the reality is anything but once the companies break those promises and go belly up.

Essentially, they only generate returns for earlier investors with money taken from later investors, leading to unaware small-time traders buying in at the peak and eventually losing their money. One of these small-time investors was Nora Samir, who said she put in $735 on January 27th. The Times writes that she found out it almost doubled overnight, racing downstairs to tell her mother, who was sleeping. “Nora, don’t be greedy,” her mother warned. “You need to take it out.”

But Samir, the 24-year-old child-health researcher, decided to buy more and more. She invested in the same companies as those touted by WallStreetBets, putting $800 more into GameStop and another $1,800 into BlackBerry, the once-great and now-dying cellphone maker. “I was on a high,” she admitted. “When the stock is going up, you don’t think of how low it can go.” And suddenly, GameStop shares plunged, with Samir managing to sell only one share on its way down, for $134. The shares she still owned on Friday were worth $528. She’s now lost more than half what she put into GameStop. The lesson, Samir concluded: “Don’t be greedy.”

Another one of these traders was Terrell Jones, a college student from Kenosha, Wisconsin who bought $300 in the shares of AMC, the movie theatre chain whose stock was also swept up in the attempt to squeeze the short-sellers. “I just got caught up in the social media hype and just dove right into it,” he said. “I fell for it.” When AMC started to fall he lost $112. “I just had to get out of there as soon as possible,” he said. “It’s a lot of money, we’re in the middle of a pandemic and I have rent that needs to be paid. I realized pretty quick that people like me were up against those billionaires, and at the end of the day, those people always find a way to win.”

This kind of faux-populist misinformation is just as unsustainable, and average people simply can’t afford to pay the consequences once they’re the last person holding the bag. The same can’t be said of Kulinski, Ball, Enjeti and any other content creators pushing these narratives for the sake of that YouTube money. For them, the revolution was a small-time news story they can fondly look back on and laugh as a simple goof. The profits capitalized by their networks, the losses socialized onto the little guy investors who hung on their every word that maybe, hopefully, the elitist cabal of billionaires would get theirs. Melvin Capital isn’t going anywhere. And it’s going to take a whole lot more than leftist misinformation to do the work of making them pay their fair share.

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